High interest rates help botched Genting Malaysia’s US$1.2b Miami land sale?

• Jorge Perez, the chief executive officer of Related Group, one of Miami’s largest builders, told the WSJ that he “passed” on the deal because Genting wanted the whole acquisition price upfront rather than in stages.

KUALA LUMPUR (July 19): It seems that higher interest rates and tight credit in the US may have had a hand in the collapse of Genting Malaysia Bhd’s billion-dollar Miami waterfront real estate sale in June, though indications are that interest on the prime property remains strong.

When announcing on June 22 that its planned disposal of its Miami property for US$1.225 billion (RM5.56 billion) had fallen through after the purchaser was declined its request to extend the exclusivity period and amend commercial terms of the sale and purchase agreement, Genting Malaysia had said the purchaser “remains interested in the Miami Land” without elaborating on the amendments sought.

According to foreign news reports, SmartCity Miami LLC, a consortium led by Miami developer Terra Group, was the prospective purchaser for the 15.5-acre (6.27-hectare) site of the old Miami Herald building with 800ft direct frontage along Biscayne Bay that Genting Malaysia bought for about US$236 million more than a decade ago in 2011 but could not realise plans for an integrated resort due to Florida regulatory restrictions that only allow Native American tribe to operate casinos.

While no new deal had been named to date, Michael Fay, the managing director (Miami office) at Avison Young, the broker representing Genting reportedly said in a statement on Tuesday (July 18) that “there’s been no break in the receipt of offers at, and even above, the US$1.2 billion price”. According to Avison Young, when the Terra deal was announced in April, there were nine offers for the site, five of which exceeded US$1 billion.

In a report on Tuesday, however, The Wall Street Journal (WSJ) said prospective buyers who considered the Genting site thought the US$1.2 billion price tag was too high given today’s borrowing costs and slowing condo market.

Jorge Perez, the chief executive officer of Related Group, one of Miami’s largest builders, told the WSJ that he “passed” on the deal because Genting wanted the whole acquisition price upfront rather than in stages. Genting had declined to comment on the WSJ article which quoted another commercial real estate expert saying Genting might attract more bidders if it divided the site into pieces, noting that at current interest rates a buyer would have to pay at least US$72 million interest a year if they paid US$1.2 billion for the Miami land and borrowed half that amount.

In its statement to Bursa Malaysia dated June 22, Genting Malaysia said it “had seen the value of its investment in Miami increase approximately 400% in just over a decade and firmly believes in the sustained strength and growth of the Miami market”, adding that it “will review other opportunities to close on the sale of the Miami land as is while the company continues to enhance its remaining Miami holdings”.

According to an earlier statement dated May 18, Genting Malaysia calculated "a pro forma gain on disposal of US$967 million on the [botched] US$1.225 billion sale price [which at the time translated into RM5.482 billion (US$1= RM4.475)]" but noted that the actual gain from the proposed disposal can only be ascertained upon completion of the deal.

At the time of writing, the ringgit was trading at 4.5398 to the US dollar.